Auckland Council says the city's housing market has benefited from regulatory and structural changes

Auckland Council says the city's housing market has benefited from regulatory and structural changes

The Auckland Council says the city's housing affordability has improved by some 26% in the past four years.

That's as measured by the council's Serviceability Affordability Model (SAM) developed in 2017.

In the latest Auckland Economic Quarterly Auckland Council's chief economist David Norman says the Auckland housing market has benefited from regulatory and structural changes including the Auckland Unitary Plan and its zoning rule changes, a surge in industry capacity in New Zealand, and ongoing economic strength in Auckland with income growth and low unemployment.

Auckland Mayor Phil Goff says the improved affordability shows the progress that is being made addressing Auckland’s housing issues.

“The Unitary Plan is working as it is intended to, helping Auckland become more compact, with 94% of dwelling consents issued in the past year being within the Rural Urban Boundary,” he says.

“We continue to issue consents at record rates across the board, with 14,634 dwellings consented in the year to September. On this estimate, the city has been chipping away at its total housing shortfall for the past four months. 

“While there is no single solution to Auckland’s housing issues, the improved affordability shows we are moving in the right direction.”

Norman says land supply and deregulation are often touted as the solution to housing affordability. While this is part of the puzzle, fixation on one factor fails to provide a full understanding of why Auckland’s housing market has remained unaffordable for many.

“At a headline level, what causes house prices to rise is simple: not enough houses being built to meet demand for resident and in some cases non-resident demand. But investigate the detail and understanding why not enough houses are being built is more complex but much more pertinent,” says Norman.

The latest report compares a broad list of factors that influence housing affordability across nine global cities, with the aim of better understanding why different housing markets have such different house price outcomes.

“Against the backdrop of continued growth, Auckland has managed to achieve greater affordability in the past six years through a mix of policies and structural changes, and after comparing other cities, we know there are several differences that give us food for thought.”

The reasons for housing shortages stem from demand factors such as incomes and unemployment rates, tax and ownership regimes; and supply factors such as industry structure, labour laws and construction wages, materials costs, regulation, and geography.

Over the past six years, the Auckland housing market has benefited from several regulatory and structural changes that have helped moderate growth. These include: Auckland’s Unitary Plan and its zoning rule changes, a foreign buyer ban, tighter loan-to-value ratios (LVRs), tougher exchange controls in China, a surge in industry capacity in New Zealand, and ongoing economic strength in Auckland with income growth and low unemployment.

Some factors influencing housing affordability cannot be changed, such as geography. Similar to San Francisco and Vancouver, Auckland is restricted by its coastal geography. Its flood plains and volcanic rock also limit its development and drive up infrastructure costs.

Other factors associated with affordability are undesirable: these include declining populations, higher unemployment and lower incomes.

In Pittsburgh and Detroit, both considered very affordable cities, populations have declined dramatically over recent decades, lowering housing demand. Furthermore, when incomes rise and unemployment falls, demand for housing increases. Most cities in the study have seen their unemployment rate fall over the last decade, but Auckland has one of the lowest unemployment rates (currently just over 4%), compared with Brisbane (6%) and other more affordable cities.

Policy and regulation can also affect affordability. One example highlighted is Brisbane’s policy to reimburse some or all costs for infrastructure and fees for affordable housing, stimulating that part of the market.

Tax policies, such as a capital gains tax on investment properties, also moderate affordability and are used in Australia, the United Kingdom, and the United States.

“Housing remains unaffordable for many Aucklanders, and although we can’t change our geography, we are making progress on things we can influence,” says Norman. “As we continue to tackle this challenge, it’s going to take more of this holistic, open-minded view to get the job done.”

Latest growth and housing data shows Auckland’s housing supply is catching up with its shortfall. Auckland Council estimates about 14,000 dwelling consents are needed each year to keep up with current growth. A record 14,634 dwellings were consented in the year to September 2019; on this estimate, the city has been chipping away at its total housing shortfall for the past four months.  

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This is good.
But while the council is self congratulatory, it should be remembered that it took very strong submissions from Housing NZ and the previous government to knock the Unitary Plan into something halfway decent.
The plan as notified was woefully inadequate.
While I am quite critical of the previous government, their influence on the Unitary Plan was hugely meaningful.

It's not clear to me from the article whether they're taking credit for the improvement in affordability that's come about because interest rates are lower.

I think its 6 of one and half a dozen of the other.
Without the precipitous drop in interest rates since 2017, nominal prices would have dropped like a substantially.
So, either way, affordability would be pretty similar.

True, it's probably been previous reports where they have beaten their chests and over-emphasised their own role in improving affordability.
This one is more balanced than usual.

Very good point and in the theme of surprising acknowledgements of faint praise...
The previous government was coming under intense pressure from the opposition housing spokesperson, Phil Twyford. Twyford had concocted Kiwibuild which promised unrestricted land supply by removing the RUB and to deregulate multilevel dwellings across Auckland. Pressure was brought to bear on Auckland by a fearful government and the vastly improved plan resulted.
I am very critical of Phil Twyford (mostly since after he was elected he did nothing and is totally useless), but in opposition he was extremely effective. Hopefully the NZ will benefit from him regaining the opposition bench in the near future.

Agree he was great in opposition...

12
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If your affordability model shows an increased affordability between Sep-2015 and Sep-2017, then your model is shit.

Good to be reassured that housing affordability in Auckland has improved.

Of course, anything that Auckland Council says can be taken as gospel. It is such an efficient and honest organisation.

TTP

If your affordability model shows an increased affordability between Sep-2015 and Sep-2017, then your model is shit.

Not just "increased affordability" but "26% more affordable" in P4Y apparently. That doesn't actually apply to house price to buyer income I suspect. Different variables you see.

Are you misreading the graph? Sep-2015 to Sep-2017 is shown firmly as unaffordable, in the negative y axis. The graph only moves towards affordability from 2018 onward.

But the graph shows sept-15 as more unaffordable (-20%) than sept-17 (-3%), so according to the graph affordability increased in that time. The Jester has a valid point.

Is this based on Auckland council wage inflation - not the general public?

Three years ago Auckland had the atrociously bad housing policy of restricting supply to inflate land costs. Then in late 2017 they expanded the RUB to increase the amount of new land supply inside by about 60%. It was a radical step change in planning that has greatly improved the affordability of Auckland housing.

Yes but as I note above it wasn't council that proposed that. It only happened because of the intense submissions that were made on the plan.

“The Unitary Plan is working as it is intended to, helping Auckland become more compact, with 94% of dwelling consents issued in the past year being within the Rural Urban Boundary,” [Goff] says.

Politician to English Translation - “The Unitary Plan is working as it is intended to, helping Auckland become more sprawled, with 94% of dwelling consents issued in the past year being within a Rural Urban Boundary which we expanded out around Pukekohe, Huapai, Silverdale and Warkworth”

All the article needs is an animation of pom-pom-shaking Council wallahs in tutus (tutae??) to complete the sense of desperate self-justification which it conveys.....

Interesting to read his views on the FBB, and how active foreign buyers were in central Auckland before the ban:

Prior to the ban, foreign buyers accounted for at least
one in six purchases in central Auckland (and potentially
much more before China reversed exchange control
rules in late 2016, according to many real estate agents).
The foreign buyer ban rapidly saw purchases from
formerly eligible buyers fall 80%, undeniably contributing
to a period of flatter house prices even in the face of low
interest rates, ongoing very strong immigration, and a big
backlog of building.

Although I could pick out a few things in this piece, Norman is right in emphasising the wide array of factors on both supply and demand sides influencing house prices.
The previous govt gave plenty of attention to the supply side, but nowhere enough to the demand side.

True, a wide range of factors influence prices and construction.
However the mind fart, hodge-podge of endogenous and exogenous factors given in his report is pretty useless without explaining the structural relationship.
I always get the idea that he seems to need to make the simple complex in order to somewhat validate his 'insights'. Never have I seen him produce robust empirical work..

'However the mind fart, hodge-podge of endogenous and exogenous factors given in his report is pretty useless without explaining the structural relationship.'

Fair point. Although to be fair I'm sure his masters want him to produce reports that are more digestable to a lay audience. So there will be a certain expectation of 'dumbing down'.
He seems to have a pretty run of the mill economist's CV. From what I have seen most economists in NZ lack the intellect to grapple well with these bigger complex issues.I'd count them on one hand - Michael Reddell, Ryan Greenaway-McGrevy... anyone else?
For me, The Sham is overrated.

Yea. He is very run of the mill. Typical bank/professional 'economist' really. Big on the spurious, not so interested in the causal.
There have been some in his dept. previously who have been quite good. Not so much anymore.
Arthur Grimes, Eilya Torshizian, Eric Crampton are people I'd add to the list..

Grimes good, not so sure about Crampton. Bit too ideologically libertarian for my liking. But that's probably more of a political view. Putting aside politics, you rate his analysis?

Yea. Agree - he can be difficult sometimes.
However, he does maintain some rigor in his analysis; Something that is conspicously absent from the AC Chief Economist's Unit these days.
In saying that, though, Shane Martin generally isn't too bad. Mario Fernandez from RIMU is pretty good, too. Peter Nunns is always pretty good, also..

SF and Vancouver are both cities built on a peninsula. Auckland is built on an isthmus. By definition we have half the restriction of either of the other two.

2/3 the restriction really.

With any luck a new volcano will pop up in the harbour shortly and ease the restriction somewhat.

So all the excuses why Auckland is more expensive re physical constraints etc. than other cities and yet this unaffordabilty did not exist prior to late eighties yet the same physical barriers existed.

Mis interpretes Houston zoning as uneconomic land use yet it highly affordable.

I suppose by that logic Hong Kong with its severe unaffordabilty must be using its land very economically.

Further Houston higher property taxes reflect true operating costs. Just as its low house prices reflect true capital costs.

Most of the higher priced cities have inverted this and charge far more than needed for the capital and under charge for the operational.

The Maths is simple on which is financially better.

And no mention that median multiple household income use to mean just one partners income, or that the putting people into smaller and smaller houses and of poor quality skews the results.

"Affordability has improved". Crap. All that has improved is the % of average earnings required to service the debt, IF no one becomes unemployed. This fatuous, non-defined word should be jettisoned altogether as it. means anything to anyone and is virtually never defined on more than variable chosen by biased commentator.
Meaning of "affordable" - to whom, at what repayment total, as a % of what level of wages, how many wages (couple?)
Finally, we could reflect (no figures in article) on fact that 76% of sales below $700k disappeared in Auckland between 2013 and 2017, due to massive bubble.
April-September sales, residential Auckland 2013, under $700k: 10,351
Same 6m in 2019: 2,466 (drop = 76%)
In 2017 it was 2447.
PS: is no housing shortage in Auckland and no crisis.
As Tookey has written, there are enough consents for increase in pop since 2012.
However, investors buy 30% of stuff to rent it out.
Shortage is of 3 bed stuff that is decent and reasonable price, to rent, which builders are building less of because make less margin on it

Am I missing something? this sounds like a farce...

Key drivers of housing affordability in recent years have been
a) house prices,
b) household incomes
c) interest rates (cost of borrowing)
d) tighter regulatory control over LVR's, disclosure requirements and foreign entities/ buyers (anti money laundering laws)

How is the council claiming it's zoning changes have had any impact on the top drivers above to effect a 26% increase in affordability?.......(cheep cheep)...... I thought so...

If anything, this unitary plan has simply spurred land banking in areas with potential zone changes

From absurdly unaffordable to severely unaffordable.

Affordability improved 26%...that is significantly at odds with the recent rates increase (significant).

There is nothing affordable about large mortgages that take 30 years to repay! This is nothing more than spin. Someone at the council has been reading too many herald articles!

It would be nice to know how they calculate affordability, my guess is that interest rates are part of that equation and hence explain more than 26% of improvement all by themselves and the rest is BS

One key question. To what extent has affordability improved due to actions outside the control of the Auckland Council?

Can the Auckland Council claim credit for improving affordability when the key driver over the past 4 years has been lower mortgage rates?

Yes, politicians can claim the credit to gain favour with their constituents but it was all due to external economic conditions beyond their control.